The CBO's Crystal Ball

A big part of the debate about whether the health care law will reduce the deficit comes down to an extremely simplified argument about whether the Congressional Budget Office is right or wrong. Problem is, no one knows right now. The CBO puts out projections about the budgetary effects of legislation if certain assumptions hold. As numerous CBO directors have made clear in the past, it's almost certain that the scores, which rely on complex economic modeling and educated judgment calls about a web of interlocking market effects, will prove mistaken somehow or another. The question is how close they'll get.

In other words, it's important to take those estimates with a grain of salt. And that's especially true when it comes to health care scoring. As Washington Post editorial writer Ruth Marcus explains, the health care estimates are some of the most complex—and therefore least certain—that the congressional scorekeeper produces:

Of all the cost estimates that the CBO produces, the most complex and least reliable involve health care. This is in no way a criticism of CBO. No matter how sophisticated the economic model, the multi-layered assumptions about the future cost of health spending make the $230 billion projection closer to an educated guess (albeit a guess made by very educated economists) than a take-it-to-the-bank certainty.

And even if the CBO forecasts were guaranteed to come true, there is the political calculus to consider. CBO made this point in its usual, restrained way Thursday, noting that "current law now includes a number of policies that might be difficult to sustain over a long period of time. If those policies or other key aspects of the original legislation would have been subsequently modified or implemented incompletely, then the budgetary effects of repealing [the health-care law]…could be quite different."

Translated into English: don't bet on that $230 billion. The health-care law will require billions in new spending. It relies on the expectation of billions in savings from slowing the growth of health-care costs and assorted cuts and taxes—all guaranteed to produce howls of outrage, and a burst of lobbying, from the affected interests.

If you want a taste of just how complex and uncertain health care scoring can be, it's worth spending a few minutes going through former CBO director Robert Reischauer's paper going through the details of the scoring process for HillaryCare. I summarized some of that process in an article on the CBO last year:

During the last major push for health care reform, under President Bill Clinton in 1994, the CBO drew up a model of the existing system, extended that model into the future, and calculated how the future would change under the proposed legislation. In doing so, the agency made scores of estimates and assumptions, both about the state of the existing system and how millions of individuals might react to the proposed changes.

In order to determine how much the bill would cost, it had to account for dozens upon dozens of variables, including how many people had health insurance and how many didn't, how many people with insurance got it through an employer, what types of plans those people had, the total amounts of their premiums, the percentages of the premiums the employers paid, the coverage and cost-sharing requirements of those plans, whether or not uninsured individuals had options to obtain insurance and what those options might be, the health of the insured, the frequency and type of care used by the insured, the nature and size of the companies providing insurance for their workers and the business reasons that led them to do so, regional breakdowns of health care use patterns, how new treatments and new medical technologies would change medical practices and costs, the impact of hospital consolidations and other developments in the business of medicine, how enforceable and effective new cost controls would be, and what choices patients would make with regard to doctors, medicines, and treatments under the proposed legislation.

To build their working model, CBO analysts worked with data pieced "together from several inadequate or dated surveys and sources," according to a 1995 article in the journal Health Affairs by Robert Reischauer and Linda T. Billheimer, the CBO's director and deputy assistant director, respectively, during the 1994 debate. Surveys and census data were used to the greatest extent possible, but by and large the necessary information simply did not exist. So the analysts did what they could, and what they still do today: They guessed.

CBO analysts probably have more data available now than they did in 1994, but the health care market is also more fragmented and more complex. So when the CBO models these markets, there are inevitably gaps in what its analysts know. That means making guesses: Not wild, uninformed, random guesses, but educated guesses by well-informed experts who nonetheless don't always have an ideal set of measurements and data at their disposal. As with any attempt to predict the future, legislative scoring is an inherently uncertain process, and that uncertainty increases with the complexity of the legislation at hand. Washington would be better off if more people understood this.